What happens to the money that is owed when someone files bankruptcy? Do creditors just have to write it off, or do other people pay the price through taxes or higher interest rates?
In most cases the creditor just loses the money. Thatís one of the risks businesses face. Of course, any bankruptcy
is also a seriously bad mark against the filerís credit record.
Chapter 13 filings may be considered a little less severe than Chapter 7 because youíre showing an interest in retiring the debts. They often allow Ė if you have a regular income and limited debt Ė to keep some of the property you might otherwise lose. Also, some debt balances may be partially discharged, with the filer agreeing to make monthly payments to the trustee for distribution among remaining creditors.
A Chapter 7 bankruptcy is lots tougher on the one who files. It involves liquidating all assets that arenít exempt. Some of the filerís property may be sold by a court-appointed official Ė a trustee Ė or just turned over to creditors.
Itís really a lose-lose situation, Grace. The business loses money, and the filer suffers the emotional pain of participating in a shameful process.